Worldwide Gloom Keeps Investors Close to Home

By Jonnelle Marte

As the International Monetary Fund cut its forecasts for global growth on Tuesday, some investing pros said they’re shifting focus to what is increasingly becoming a sweet spot: the good ol’ U.S. A.

In new projections released today, the IMF said the global economy will expand by 3.3% this year, down from the 4% growth the fund forecasted in September. The slowdown stemming out of Europe is expected to weigh down on other regions like the U.S., Japan and the U.K., the IMF warned Tuesday. But economists and advisers point out that for a host of reasons, the U.S. – compared to much of the world – is a safer haven for investors. “We feel the US is better positioned to withstand an economic slowdown better than other countries,” says Ethan Anderson, senior portfolio manager for Rehmann Financial.

While the economy may be slowing worldwide, and Europe is expected to slip into a recession this year, recent reports show that the economy in the U.S. is slowly picking up, economists say. Unemployment and manufacturing data in the U.S. brightened in recent months, says Aaron Smith, senior economist for Moody’s Analytics. And while an excess of inventory in sectors like technology is keeping production down at the moment, stronger consumer demand could cut down that inventory and lead to a boost in manufacturing, he adds. “The U.S. continues to be the most positive growth story,” says Smith.

Another reason investing pros are sticking close to home: if the global economy slows as the IMF predicts, countries that are net importers, like the U.S., could hold up better because they depend less on other countries to keep their businesses running, says Anderson. While a global slowdown would inevitably hurt American businesses, countries that rely heavily on exports, such as Japan, Germany and China, would suffer more, says Anderson.

To be sure, that doesn’t mean investors should abandon global stocks, advisers say. With much of the slowdown stemming from the euro zone, investors should also focus on emerging market countries that have higher potential for growth, says Anderson. But they should be more selective with their international stocks, even within emerging markets, preferring regions like Latin America and Asia, that are weighed down less than emerging countries closely tied to the European countries like Hungary and Poland, says Smith.

Many advisers, who warn against reacting too much to economic reports, are keeping any tweaks to their portfolios minor. Stuart Freeman, chief equity strategist for Wells Fargo Advisors, says the report of slower growth confirms his decision to invest in a mixture of defensive stocks, like utilities and telecom, with more aggressive sectors like industrials and materials. Pros also caution that the outlook can change quickly, so investors should refrain from making big moves. Freeman, for instance, says he is prepared to shift money into more aggressive sectors, such as industrials and materials, if the economy picks up later this year. “We think there’s some potential for a little bit more confidence to come back,” says Freeman.

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